How Japan’s retail property investment market is faring recently

Headwinds are still present but some investors are bullish about the sector’s recovery.

According to a recent Savills report, the latest results of the October 2021 semi-annual survey conducted by JREI show that expected cap rates for prime retail property have stayed mostly flat over the past six months, with the exception of some cities experiencing tightening of cap rates. For example, while cap rates in Tokyo's Ginza and Osaka have remained flat at 3.5% and 4.5%, respectively, cap rates in Nagoya and Fukuoka both tightened 10 basis points (bps) to 4.9%. 

Elsewhere, expected cap rates for suburban shopping centres in Tokyo and a majority of regional cities have also stayed flat, with the exception of Osaka and Nagoya, which both saw cap rates tighten by 10bps to 5.6% and 5.9%, respectively. However, it should be noted that actual market cap rates could be as much as 100bps lower than these surveyed cap rates and remain stable. 

Here’s more from Savills:

The retail sector has continued to face headwinds over the past two years of the pandemic as the multiple state of emergencies and restrictions have led to reduced footfall in stores and has likely shifted some spending habits from brick-and-mortar stores to online shopping. 

Nonetheless, some investors have been bullish about recovery in the sector as the pandemic wanes and as many countries in the world are approaching a state of normalcy. In fact, some properties in the high-end retail sector have seen particular interest over the past few months. 

For instance, the Ginza Yanagi-dori building, a premier retail and office building in the middle of Ginza, was acquired by four different domestic investors. In addition, other transactions of prime retail properties like Clover Ginza in Ginza, and the JPR Umeda Loft Building in Osaka have also taken place. 

Overall, retail transactions in 2021 have surpassed levels seen in 2020. According to preliminary data from Real Capital Analytics (RCA), transactional volumes in 2021 were over JPY610 billion in 2021 – a 33% increase from 2020. While volumes in the first quarter of 2022 have been slow, this figure is expected to increase as more transactions are confirmed. Indeed, the increased interest in retail properties in city centres could be a sign of expected recovery in the market.